Secure Property Development & Investment (LSE:SPDI) — Shareholder Update

0:01 Good afternoon, and welcome to the SECURE PROPERTY DEVELOPMENT and INVESTMENT PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just please simply type in your question at any time and press send. The company may not be in a position to answer every question received during today's meeting. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll. And if you

0:32 give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand over to Chairman of the Board, Michael Bayes. Good afternoon. Good afternoon or good morning depending on where you are and where you're calling in from. And welcome, as Mark just said, to the shareholder update call for SECURE PROPERTY DEVELOPMENT and INVESTMENT PLC SPDI. I just wanna open by thanking each and every one of you for your attendance today and your participation, but above all, your patience, your support, and your interest in SPDI. Thank you. Let's start with the basics. SPDI, as you know, is an AIM quoted Southeastern European focused property company.

1:28 Our last shareholder update call was last year on 07/06/2021. And I'd just like to quickly review the announcements we've made since then, which, of course, are are on our website and on the AIM on the AIM site for for SPDI.

1:54 We announced our shareholder call last July just a few days before. On August 21 on August 31, there was a brief announcement about some shareholdings, namely some some share acquisitions I made, in fact. On 09/30/2021, we announced our half year results and report. On 12/07/2021, we noticed the annual general meeting of shareholders. On 12/30/2021, we published the results of that AGM. On 03/04/2022, we made a general announcement about the situation in Ukraine ten days in, ten days into the special military operation or the the the war there, and the status of our Ukrainian assets.

2:55 And, of course, the most substantive announcement we made was on March thirtieth of this year about stage two of the Arcona deal. It's entitled transfer of Romanian property asset to Arcona. Although, of course, we we had another announcement announcing this shareholder update call on May 25. I would I would refer each and every one of you, to those announcements just as background where we are. But for now, let me just let me just give some of the highlights. And let me start with an overview and background of the Arcona deal from inception.

3:41 We embarked on the deal in mid to late twenty eighteen. And the deal from inception through today was to contribute, SPDI's assets in Romania, Bulgaria, and Ukraine in exchange for stock in our Kona property fund, APF. There were two goals from the perspective of SPDI for greater optionality For those shareholders who wanted to continue, investing in and operating, in Eastern European real estate, they could. And those who wanted the the stronger prospect of an exit could have that. That was always our guiding principle, for the Arcona deal.

4:39 Now as you all know, the deal has taken longer than expected. There are three principal reasons that that the deal has taken longer. One, as you heard me say last year on the call and I think the call before that, there was substantial COVID and pandemic related delays. That's reason one. No no no reason to belabor that. You you know about that. Secondly, as you've also heard us discuss over time, the general complexity of the deal and the many jurisdictions that SPDI, and Arcona operate in, are domiciled in, have advisers in.

5:24 There are probably,

5:28 you know, just under a dozen jurisdictions, that we're operating into to make this deal come together. And, of course, the third principle reason, the most unexpected of all is the war in Ukraine, where, you know, SPDI, if you'll recall, started out with assets almost entirely in Ukraine, before we expanded in the region. And there were two Ukrainian assets that were sold to Arkona, as part of stage one, and there are three that, that were part of stage two that, for the obvious reasons, have been have been delayed.

6:14 But having discussed the reasons for the delay, the real headline here is we have made progress and we reached an important milestone. We have closed the lion's share of stage two, about 75% of what's been contemplated for stage two. And I would refer you for greater detail to our announcement of 03/30/2022, which has a little more detail on on that portion of stage two that we've closed. We are seeking to close the balance of stage two within the next few weeks. There's a question mark about Ukraine, the the Ukrainian assets, which we are monitoring, managing, and working with Arcona to optimize the transfer of those assets whenever whenever possible under very difficult circumstances.

7:16 But once we've completed stage two, I would say three things. SPDI will be left with a very small number of assets that we will work to manage, dispose of as the case may be. It will leave SPDI with a substantial ownership percentage in our Kona property fund. And at that point, we will take a much closer look at stage three, which has been contemplated, but has been very much on the back burner. And we will really start to think about stage three after the completion of stage two, which is our singular focus, at the moment.

8:09 But the headline here for all of you and for the patients you've shown us is SPDI has made good progress and reached a critical milestone through very challenging times. And with that, before I turn it over to our CEO, Lambros and Agnostopoulos, I'd like to I'd like to just close these introductory remarks where I started. I'd like to thank you all, those of you here today especially, but all our shareholders for your incredible patience and support. As I hope you realize, we have worked very, very hard, management and the board of directors, to reward the confidence and trust you've placed in us.

9:00 It hasn't been easy. It hasn't been quick, but we're making slow but steady progress. And you all know what they say about slow and steady. We will finish this race, and and we appreciate you hanging in there with us through these times. So with that, I'd like to hand over the the floor to Lamboros and Agostopoulos, our CEO. Thank you again. Thank you, Mike. I appreciate, your introductory remarks. And now you are speaking about the two key issues, the pandemic and and the war in Ukraine, my mind went back to what happened before that, which included the collapse of the Cyprus banking system and the banking haircut there, the global economic collapse. So it seems that our timing to say the least has not been perfect.

10:02 We are working and and and progressing in very difficult times for Eastern Europe. Having said that, let me start with the impact of war. To start with, our people there are safe. We don't have many. We have a couple of people, both of them part time, but nevertheless, we have third party service provider as well and partners. All of them are are well. The family of a key person there has been evacuated in a neighboring country in Romania. So the most important thing, is life, is preserved. Hopefully, the war will stop quickly and will be spared of, meaning the world will be spared of of more damages.

10:55 It's worth mentioning that out of all our properties, we sold the 50,000 square meter terminal in Brovary, logistics terminal in Brovary, a village east of Kyiv that is under was under heavy attack in the last couple of months three years ago and at the time of the profit. So we were lucky. We were helped by luck to, not have property standing during the war. We have land,

11:26 as Mike said, but land, is not destroyed. So, hopefully, as soon as the war ends, the land will be used to benefit the Ukrainian people. As far as the Arcorona deal is concerned, I don't think I can add much to what Mike said. It has been a slow process. We ourselves are all surprised by how slow it was despite the huge difficulties legal and and jurisdictionals and everything Mike has said. But the the the keynote here, as Mike said, is we are making progress. We're getting there. Hopefully, soon, we'll be finishing with stage two, at which point, the board will review stage three. We'll review even further our own operating costs because once Romania is gone, these also will go further down.

12:27 Romania, contrary to Ukraine, has done extremely well the last few years, and the property market, the real estate market has also done very well. And things are moving, so whatever is is residential in Romania is being sold directly. You know, even though it is part of stage three, we would not be waiting for our to proceed in stage three as this is going slowly. We will be selling the we are selling the residential units. One qualification is ever since the war started, it did not come by itself. Unfortunately, it came with inflation, with increase of because of the global supply chain problems with increase of material.

13:22 So development cost and and construction cost has gone up, and it affects us indirectly because we have land, and land can only be sold to developers. So the moment land in Romania is sales of land in Romania are maybe frozen is not the correct word, but slowed down substantially. Outside that, we are the the properties we have are doing very well. They're almost fully let. Even the the ones which the the headquarters of Danone, the Innovations Terminal in in Bucharest. It's interesting the Innovations Terminal, which was part of Stage 3 because when when reviewed it, it was almost empty. Now it is for the for some time now.

14:12 The cold temperature component is fully let for already four years with extension for more to come. We extended it recently. And the ambient part is also almost fully this is almost fully let, not fully let because the two tenants are extending their leases. And what is left is small piece, which is difficult to to let, but it's more than 90% let all these years ever since we started discussing that one. So as far as income is concerned, we have not been affected by either the war or or the pandemic. As far as costs are concerned, we are doing our best to reduce them. And I want to take the opportunity here to thank publicly all our service providers that have been flexible in talking with us, discussing with us, and accepted to share the burden, the cost burden that pandemic and the delay resulting from the pandemic put on us.

15:14 And I thank them full heartedly in in major sections. I believe I'm talking about The UK, about Cyprus, about Ukraine, about Romania. All service providers have been very, very helpful.

15:28 This is, I think, a summary of where we stand. There are a number of questions that we have received, and I would like to address them. But maybe I should give the floor to Mark since you will tell us what to do now, Mark. That's great. Thank you, Lambrus. Thank you, Michael. Later, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. Lambros and Michael take a few moments to review the questions submitted already. I'd like to remind you that the recording of this presentation along with a copy of the slides and the published Q and A will be available for your review at some point later today. Lambros, obviously, as you can see, you you had a number of pre submitted questions from investors. And of course, if any questions do come in, they'll be in the q and a tab for you as well. If I may just hand back to you to read out those questions and just give a response where it's appropriate to do so, and I'll pick up from you at the end.

16:20 Thank you, Mark. There are a bunch of questions. As as Mark mentioned, some some refer obviously to the same subject. One was the obvious how Ukraine the war in Ukraine affects our business, our market, our market value, and the value of the assets. Well, as I mentioned, as far as the the business is concerned, it's not really affected. We only have lands, and our people are safe. As far as the value of the land assets is concerned, it's a very interesting question because, first of all, the current value the valuation that will come out with our final accounts will refer back to, December 21, which is before the war.

17:10 Second, the land assets, do not lose their value. The land is there. Having said that, if you talk to any auditor, the definition of the value of a property asset despite being land or not is the value of what one can get by selling it today. And, obviously, the answer is zero because nobody can sell anything today in Ukraine. So as far as we are concerned, the assets have not lost value. As far as the auditor is concerned, who will decide the final valuation for 2021? I do not know the answer. He will have to guide us. The second question that, came on board was, a question about the length of time that Arcona transaction is taking and if we can predict or see the future timetable for stage three.

18:12 And there, I will refer to you I will show you sorry. What what Mike Base said earlier, we are expecting to close stage two soon. And as soon as we do that, then we will deliberate as to what to do and how to proceed with stage three among ourselves and together with our partners in Arcona in order to proceed in the most efficient way and the most beneficial way for our shareholders. The third question that is linked to the second question is had to do with I'll read the question. Is it fair to assume that you will have all remaining residential assets in Romania sold by the end of the year?

19:04 As I alluded to earlier, the Romanian property markets are doing well. Our residential assets are being sold fast. I do not expect to have many, if any, in our books at the end of the year. Of course, I mentioned I I put the qualification on the land assets, even land for residential because the developers are taking a halt in their businesses and in their plans. Because, obviously, Romania is neighboring Ukraine. They have borders, and they feel the brunt of the war even more than we do. And at the moment, I don't see many developers buying land or planning developments even though if you ask my personal opinion, I see this picking up substantially after the war ends.

19:53 But, frankly, the war ending has to do with people and lives as opposed to land and property. So let's have the war end first, and then we can discuss this. Another question had to do with our case legal case against Blue House Accession, which is a company we bought I I remind those who don't remember, we bought a property from many years back, and we had we have we did not pay according to Blue House, we did not pay the full amount, and we have provided for that. According to our legal advisers, and and there's a case between the two entities in secret courts.

20:40 According to our legal advisers, our case is very strong. Having said that, because we have taken full provision and we are conservative, we would not like to preempt the decision of the courts, and therefore, we are not going to change the provision. As much as we believe that it is over more than what it should be, we keep it as such to be on the safe side. Another question that came up was had to do with one when do we expect to distribute the Arcona shareholding to our shareholders directly? Meaning, shares and warrants, because we don't only have shares. We have warrants to be turned into shares subject to share price.

21:33 Mike did address that, but maybe I I'll let you, Mike, again revert to that question and and even repeat yourself if if need be just to be clear. Sure. On the question of distributing to shareholders the Arcona shares, I would say the next steps are as follows. Number one, finish stage two. Let the let the let the ink dry and the dust settle completely on stage two, which, again, we hope to do within weeks with the question mark about Ukraine. Two, we will have SPDI will have remaining assets, and we need to really take a deeper dive into stage three of our deal with Arcona.

22:28 And, you know, that that that stage may be mutually modified between both sides, so we have to see. And then once we have a view on whether and to what extent stage three happens, at that point, we will reach out to our shareholders. We will deliberate among the directors, and we will seek to build a consensus on the best way to maximize our position. But the plan was always to ultimately distribute or dividend out whatever the the legal mechanics are, the shares the shares to shareholders. But I don't want to mislead anyone here.

23:13 There are still a couple of critical steps that need to take place. And so more on that more on that in the future. Thank you. Thank you, Mike. One thing is to clarify is that all these other than the the stated objective to create an option for our shareholders, both sets of shareholders, those that want to continue investing in Eastern Europe and those those that want to monetize our investment of Eastern Europe will have the option to do so through this effective merger with Arcona. There's no other plan in the minds of the boards at the moment of what to do, for example, with SPDI after the merger. This is all all to be discussed, deliberated, revert to the shareholders, get their opinion, and then we decided when, as Mike said, the time comes.

24:08 There was a question about the sources of financing debt financing for the company. And it was and and, actually, the question is if we can talk about the sources and if there's any scope to making savings on on such costs. So we have two sets of debt financing sources. We have a couple of corporate debts at the company level, and we have property loans at the property level. Now the property loans are moved together with the properties when they are either contributed to Arcona or sold in the market. Or in the case of residential, they are repaid at the time of the sale.

25:00 In we are vigilant. We are affecting asset management during the whole process. When the opportunity arises, we do refinance our assets, and we are we do not hesitate in doing it if we can find a better banking bank loan opportunity. We even go as much as to continue this process after we contribute the assets to Arcona. We have done so with our Bulgarian assets that has been contributed to to Arcona for couple of years now. But our relationship with the with the banking system in Eastern Southeastern Europe is strong enough that they have wanted us to continue the relationship and and margin the the banking the bank financing on the specific asset.

25:55 Overall, I would say that we have low LTV. We have market or below market terms in our our loans, and we endeavor to repay them obviously, on time, but even before time comes if we can and if need be. There there was a couple of questions regarding people, costs, and administrative overheads. Let me bundle them together so I will not read them more time. But, basically, the question is the question had to do with the number of subsidiaries we have in the SPDI group and whether we can, by reducing them, reduce the advertising sorry, the administrative cost, the people we have in the group, in the various companies of the group, and the travel we do that I I believe had the components linked to the war in Ukraine as well. Let me take each on on one at a time.

27:06 Regarding the travel, I can tell you that despite the fact that we can obviously not travel to Ukraine, we have we are in very close contact with our people there. We did go to Ukraine, meaning the single management did go to Ukraine last year. And, obviously, we do visit our assets in in the other countries, and we have very strong not not not strong in in numbers, strong in quality people group in in each country. And therefore, we have the confidence that our asset management capabilities have not been either affected or or diminished in any way. Regarding and and to be fair, we are happy that we see Kyiv the last month picking up pace.

27:58 The people have gone back to the office. There's at least communication. The government is not functioning. The local authorities are not really functioning, but we're happy that it something is functioning not because of business reason, but because that signifies that people are getting back close to what their lives used to be before the war. In terms of of people themselves, we have been running, imagine, the various subsidiaries and the properties of this company with a very efficient but extremely thin organization. We have very few people, and we have been benchmarking the cost of these few people in the region and in Europe overall.

28:46 The board has done independent analysis and independent benchmarking processes to make sure that we are as we believe we are way below average, sometimes even below minimum. Having said that, as soon as stage two closes and the Romanian assets move to Arkona, then there that will give us another opportunity to further reduce operating costs. Regarding the subsidiaries that we have, It is true that the SPDI group had a number of SPVs, subsidiaries, special purpose vehicles for financing financial and tax reasons. These used to be around 50 just before the pandemic, and they are now have dropped at 35 going to 30 within the next couple of months, by contributing SPVs to Arcona or selling SPVs with properties or closing down SPVs that are left.

29:48 Just to give you an indication of what that means, usually, a property has one or more SPVs on the ground plus another company in Cypress. And therefore, we that is that helps us a lot by when we transact, we move companies or corporations as opposed to assets, and that helps in many ways both efficiency and and taxes. And, you know, some occasions that we have to transact a property, then some SPVs are left hanging empty for no reason, and these we close down. It takes some time. It's a process that takes some time, but we do it. And therefore, we expect these processes these these companies to go further down, especially after closing stage two. I told you from fifty, we are now 35. We're going to 30, and after stage two, we'll go even even lower.

30:48 And, therefore, we expect, overall, our administrative costs to go further down within the year even though I have kept saying to the board and to the shareholders that it is, I believe, at extremely low comparative levels to in comparison with with companies of similar standing and similar region. And I do not see any more questions in the inbox. Have I missed something, Mark? No. You've done a fantastic job. You had all those pre submitted questions. So no, you've covered pretty much everything off. And if any further questions, Lambros do come through on the platform, we will make those available to you post today's meeting.

31:34 I know investor feedback will be particularly important to you both, and I'll shortly redirect investors to give you their thoughts and expectations. Before doing so, maybe, Michael, if I could hand back to you just for a few closing comments. And then as I say, for those on the call, I'll redirect you for your feedback. Sure. Thank you, Mark, and thank you, Lambre, for your report. I just want to do a quick closing recap. The headline again is that despite many headwinds, including geopolitical ones and and a war where many of where several of our assets are, we've reached a very important milestone having closed not only stage one in the past, but now approximately 75 of stage two of the transaction with Arcona.

32:32 Once the balance of stage two is closed and, again, not to I mean, sorry to repeat ourselves, but question mark about the timing of the Ukraine assets, but we will close whatever we close of stage two. SPDI will still have a few remaining assets. As I forgot to mention, but Lambros did a very good job of SPI SPDI will have a much reduced cost structure. And those remaining assets, we will consider all our options, whether it be stage three, with our Kona or or some other outcome. And SPDI will have a very substantial percentage of ARCONA property fund at that time.

33:26 Going back to the overall goals of Arcona, I think it's fair to say that we will have met those goals, which was those who want to continue investing in the region will be able to, and those who want to exit will be more able to do that. And so my closing closing is just, again, to say thank you for your patience and support. We have we have worked hard to to reach those goals, and it's it's been a tough couple of years, but we're getting there.

34:12 And and, you know, we hope you appreciate it. And and even if you don't, it's it's for your benefit, and we feel like we've done the right thing. And we've gotten to where we have said all along, albeit more slowly, we had hoped and expected to be. So we hope to have another announcement in the next couple of weeks with whatever we finalize on stage two, and then we will take it from there. But until then, the board and management of SPDI join me in thanking you all for your investment in SPDI and your patience and support. That's great. Michael Lambrose, thank you very much indeed for your time this afternoon and for updating investors.

35:01 Could I please ask those investors on the call not to close this session as you'll be automatically redirected to provide your feedback in order the management team can better understand your views and expectations? This only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of SECURE PROPERTY DEVELOPMENT and INVESTMENT PLC, we'd like to thank you for attending today's presentation. That now concludes today's session, and may I wish you all a very pleasant afternoon. And to you, Michael, a very good morning. Thank you.